Political Decentralization and Policy Experimentation

Hongbin Cai () and Daniel Treisman

Quarterly Journal of Political Science, 2009, vol. 4, issue 1, 35-58

Abstract: Since 1932, when Justice Louis Brandeis remarked that in a federal system states can serve as "laboratories" of democracy, political decentralization has been thought to stimulate policy experimentation. We reexamine the political economy behind this belief, using a simple model of voting in centralized and decentralized democracies. We find that the electoral logic suggests the opposite conclusion: centralization usually leads to "too much" policy experimentation, compared to the social optimum, while decentralization leads to "too little." Three effects of centralization — an "informational externality," a "risk-seeking" effect, and a "risk-conserving" effect—account for the different outcomes.

Keywords: Decentralization; Innovation; Policy experiments; Voting; Information (search for similar items in EconPapers)
JEL-codes: D72 D78 H11 H70 H77 H83 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jlqjps:100.00008039

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